Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is a joy.
Speaker 3: This is something Paul's demanded that we get from macro
Speaker 3: policy perspectives. Constant Hunter in here with Julia Cornado and
Speaker 3: Taviam Paul in this day is just you know, I
Speaker 3: just think that killer Julia does this shift Powell's discussion
Speaker 3: of the character of our disinflation.
Speaker 2: This stunning report.
Speaker 4: I think it's an important report. I think Chair Powell
Speaker 4: is likely to express some optimism that progress has resumed
Speaker 4: after a disappointing first quarter and that the plan to
Speaker 4: lower rates is on track. We think that they'll come
Speaker 4: out with a two cut baseline. This report sort of
Speaker 4: solidifies that we think that Chair Powell sort of has
Speaker 4: that control over the median and the message, and that
Speaker 4: he can sort of credibly express optimism, say that we
Speaker 4: saw some broad based progress in today's report after a
Speaker 4: d since April. So if we get a few more
Speaker 4: prints like that, then they can begin a process. The
Speaker 4: FED is now having to deal with the decision of
Speaker 4: do we start early so that we can go slow,
Speaker 4: or do we wait till weakness arrives, which is the
Speaker 4: track record of central banks right wait till weakness arrives
Speaker 4: and then cut quickly. This is a new approach or
Speaker 4: a relatively untested left roach.
Speaker 3: Because she knows I'm going to go mental, yes, put surveillance.
Speaker 5: There's a lot of folks out there that says this
Speaker 5: FED is already behind the curve, that they should be
Speaker 5: cutting already. Do you, guys, how do you think about that?
Speaker 1: I think that that is a valid perspective, But of
Speaker 1: course they also have there's people who are saying that
Speaker 1: there's going to be no landing, that the FED isn't
Speaker 1: going to cut it all this year. So I think
Speaker 1: I understand the perspective of the FED of deciding to wait,
Speaker 1: given the prints that we had in the beginning of
Speaker 1: the year, and given the fact that we're seeing anomalies
Speaker 1: in the CPI data that we didn't see prior to
Speaker 1: the pandemic. And so I think from their perspective, you know,
Speaker 1: caution is the better part of valor. On the other hand,
Speaker 1: as Julia said, historically they are late, and so I think.
Speaker 6: That they do run that risk.
Speaker 1: Fortunately, the jobs print last week was stronger than expected.
Speaker 1: But our big concern if they're late is that labor
Speaker 1: market starts to weaken and once you see that it's
Speaker 1: too late because it is at best a coincident indicator.
Speaker 5: Right, And Julie, I mean Joe Wisenthal from a Bloomberg
Speaker 5: Onlins podcast just moments ago, said, you know, raising some
Speaker 5: concerns about the labor market here that we you know,
Speaker 5: four percent, You get paid attention to that kind of number.
Speaker 5: So how do you feel about labor?
Speaker 4: Yeah, no, I think that the the May employment report
Speaker 4: was truly mixed, right. We the payroll number is strong,
Speaker 4: it was broad based, but the household survey is showing
Speaker 4: rising slack. You have to take that message at face value.
Speaker 4: The fact that we have gone from a low of
Speaker 4: three point four to four point zero. It's still a
Speaker 4: low unemployment Rate's still a healthy job market, but you know,
Speaker 4: it is not a more balanced than it was before.
Speaker 4: There are risks on both sides now. And as Constance said,
Speaker 4: if you keep restrictive policy in place for too long.
Speaker 6: Then you're going to lose that resilience.
Speaker 4: So even actually Governor Waller said this earlier this year.
Speaker 4: He said, you know, the low hanging fruit of bringing
Speaker 4: down job openings, you know, without a rise in unemployment
Speaker 4: is probably behind us. To really see a decline in
Speaker 4: labor demand from here, you're going to get that alongside
Speaker 4: a rise in unemployment.
Speaker 2: Yeah, we're going to come back.
Speaker 3: But it's just a joy to have Constance Hunter and
Speaker 3: Julia Cornetta with us.
Speaker 2: But I got one fundamental question. Are we more than
Speaker 2: ever John.
Speaker 3: Edwards in Louisiana as you were studying in Texas? Are
Speaker 3: we more than ever? Two Americas? And the idea idea
Speaker 3: of aggregate analysis that the echos building is just quaint.
Speaker 4: You know, I think there are always lots of Americas?
Speaker 2: But is there more now? Is it more polarized now in.
Speaker 4: Terms of politically, Absolutely, we're in a very ecomorize economically.
Speaker 6: No, I would say, Tom, Actually the good news is.
Speaker 4: That we're less polarized economically in a sense that the
Speaker 4: lower wage workers have the best labor market they've seen
Speaker 4: in generations this cycle, and it hasn't cracked yet. Really,
Speaker 4: the weakness we see in the labor market is at
Speaker 4: the top. It's the professional service sector jobs that are
Speaker 4: experiencing the weakness. So no, I would say, actually, we've
Speaker 4: seen a narrowing and wage inequality this cycle that we
Speaker 4: haven't seen in thirty years.
Speaker 3: It's just a bang up day here folks, if Jim
Speaker 3: Bullard with us, the former president of Saint Louis, FED
Speaker 3: and here for a half hour Julia cordontto with us
Speaker 3: in Constance hunder a micro policy perspectives to get us
Speaker 3: towards the FED meeting this after noon, most importantly at
Speaker 3: ten o'clock, Paul Sweeney will drive forward with Alex Steele.
Speaker 3: I mean you got you got something to talk about
Speaker 3: it after this.
Speaker 5: Inflation report, got got get a very interesting inflation report,
Speaker 5: very something very important for the FED to take into
Speaker 5: consideration here as we hear from the FED. And you're
Speaker 5: gonna have full coverage this afternoon, right tom starting.
Speaker 2: Can I go? Can I go? Odd?
Speaker 3: Sure?
Speaker 2: Mexican paeso weakness.
Speaker 5: I don't know where to go.
Speaker 3: There is just stunning. We have Juliet Cornado in the room.
Speaker 3: You think we should go all Mexican pa.
Speaker 5: I want to do that.
Speaker 6: Yeah. And there it is politics for you, yes, exactly.
Speaker 4: And the bond market action we saw in France yesterday,
Speaker 4: you know, on just a rumor, there's a lot of uncertainty.
Speaker 3: What a joy to have us here for a half
Speaker 3: hour Julia Cornado and Constance hunder of micro policy perspectives Constant.
Speaker 3: You know, I love Neil Daddy. He doesn't mince words.
Speaker 3: May I quote Paul It does not take a rocket
Speaker 3: scientist to figure out what needs.
Speaker 2: To be done.
Speaker 3: Yeah, and he's like, let's go. So FED needs to
Speaker 3: get on with it. Constance, what are they waiting for?
Speaker 3: I mean, I get at their ex post. You know,
Speaker 3: with an act, we all know this. Can we really.
Speaker 2: Hope for a new regime where they get on with it?
Speaker 1: I mean, one thing that is going to hold them
Speaker 1: back is that shelter print. Now that was isolated to
Speaker 1: New York rents which went up and played an oversized part.
Speaker 3: No, no, no, no, how much did two blocks in New Jersey
Speaker 3: play point?
Speaker 5: Yes?
Speaker 3: Was are you telling me national inflation was Paul Sweeney's
Speaker 3: housing fault?
Speaker 1: I think it was Paul Sweeney's fault in particular.
Speaker 6: Yeah, yeah, he used to blame.
Speaker 1: You should get all the hate mail, you know, But seriously,
Speaker 1: they're gonna need to see that shelter number come down
Speaker 1: a bit. And you know, but I don't disagree. Look
Speaker 1: that September has to be firmly on the table. The
Speaker 1: markets believe it's firmly on the table, and even fed
Speaker 1: that's a little bit behind, should be able to move
Speaker 1: in September.
Speaker 3: Jey, how do you.
Speaker 5: Think about the US consumer here, Because we're getting inflation's
Speaker 5: coming down, but it's still at that high reset level
Speaker 5: of nineteen percent versus twenty nineteen. How's the US consumer
Speaker 5: doing today?
Speaker 4: Look, I'll reframe it this way. We should thank the
Speaker 4: US consumer because one thing we keep hearing in earnings
Speaker 4: reports and in the FEDS Beage book is that consumers
Speaker 4: are priced sensitive. Again when we look at things like
Speaker 4: goods prices broad based deflation, consumers want deals and they're
Speaker 4: getting them on cars, on furniture, and on apparel this month,
Speaker 4: so airfares on airfares, airfares plunged, So consumers are back
Speaker 4: to that norm that they had before the pandemic of
Speaker 4: to part with my money, you're going to have to
Speaker 4: offer me value, and that is helping restore healthy inflation dynamics.
Speaker 4: So they might still be grumpy from what we've all
Speaker 4: been through, and we also, as Tom had alluded, to
Speaker 4: see a lot of polarization in those sentiment numbers, but
Speaker 4: you know the reality is that consumers have taken control
Speaker 4: back that pricing power that companies enjoyed during the pandemic
Speaker 4: has evaporated and now.
Speaker 6: They need to deliver values. So some of those margins
Speaker 6: are going to get pressed.
Speaker 3: We had a GDP number first quarter. Where are we
Speaker 3: one point three, one point four percent? Whatever Atlanta GDP
Speaker 3: balloons out four percent?
Speaker 2: I think, bring it back. Now we're running what's the
Speaker 2: run rate? To both of you? What's do you? I mean,
Speaker 2: do you guys argue about this? What's the run rate?
Speaker 2: Unreal GDP? Are you that far apart the two of you?
Speaker 4: I don't know.
Speaker 6: I think so.
Speaker 1: I think we're at both at about two point four
Speaker 1: two point five. I mean, you have to look at
Speaker 1: GDI when you look at this, and last last quarter
Speaker 1: was really trade in inventories, right, and so the question
Speaker 1: is how much are those inventories going to be rebuilt?
Speaker 1: That's a very tricky thing to forecast. And then obviously
Speaker 1: we have this strong dollar which is hurting trade in
Speaker 1: some respects, but we also see tailwinds from the global
Speaker 1: economy that we haven't seen for four years that could
Speaker 1: slightly help our trade numbers.
Speaker 3: I mean, it comes down to domestic final sales. What's
Speaker 3: twelve months for mean, Julie, you were a BMP peribot
Speaker 3: years ago, making headlines on this, what's domestic final sales
Speaker 3: look like one year out? Don't give me this gloom stuff.
Speaker 6: No, it's not gloomy.
Speaker 4: I think we're both very constructive on a better productivity cycle,
Speaker 4: not just because of AI. AI hasn't even begun to
Speaker 4: enter the room yet. This is about a healthier labor market.
Speaker 4: We've entered the stock market room, but not necessarily the
Speaker 4: productivity numbers.
Speaker 6: It is a bit.
Speaker 4: We've had a strong investment cycle, We've had a good
Speaker 4: labor market, good matching of employers and employees, and it's
Speaker 4: we're not deleveraging. Last cycle was all about deleveraging and
Speaker 4: global fragility and financial fragilities. And we have strong balance
Speaker 4: sheets and a healthy, broad based economy. So I think
Speaker 4: we are pretty constructive. That we've got a better productivity trend.
Speaker 4: We've got immigration, at least for now. That's going to
Speaker 4: be a big policy differentiator in.
Speaker 6: Twenty twenty five. But for now, the.
Speaker 4: US economy looks like it can run, you know, above
Speaker 4: two percent UH and not generate inflation.
Speaker 3: Apple's up nine since the gloom of the AI presence.
Speaker 6: Actually that's true.
Speaker 5: Nine This is just the a I bump that everybody
Speaker 5: was looking for and they got.
Speaker 6: I probably did too expensive.
Speaker 5: But here we go up higher again.
Speaker 2: So there you go.
Speaker 6: Very good, very good file.
Speaker 1: Actually good for now I need to start trimming that position.
Speaker 5: Just loading and up by the momentum constance. What do
Speaker 5: you what would you like to hear from the FED
Speaker 5: chairman today versus maybe what do you think we will
Speaker 5: hear from the FED chairman?
Speaker 1: Yeah, that's that's a great question. I mean, I'd like
Speaker 1: to hear him say that they as long as inflation
Speaker 1: is making progress towards two percent, that it will be
Speaker 1: appropriate for them to take away some policy tightness. And
Speaker 1: let's remember where where is our star. Let's say it's higher,
Speaker 1: Let's say it's three and a half, right and a half.
Speaker 1: Let's say it's there. They can start cutting and still
Speaker 1: be restrictive. And so I'd like that message of we
Speaker 1: can start cutting and policy will still be restrictive.
Speaker 3: Okay, So economic historian from the University of Texas, is
Speaker 3: there any heritage that we do that besides a green
Speaker 3: spanning and measured after after the fact, I don't observe.
Speaker 3: I mean Richard Timberlake at Georgia or mcteera Dallas Fed
Speaker 3: years ago.
Speaker 6: No, there's no history. The history.
Speaker 4: The history of what you you just noted is green
Speaker 4: span is the mid nineties, mid and late nineties where
Speaker 4: they kind of ebbed and flowed the FED funds right,
Speaker 4: it went up, it went down, it went up, it
Speaker 4: went down and without recession, and it was about fine
Speaker 4: tuning and keeping the experience.
Speaker 3: Does he have to address that today? Is the garden company?
Speaker 3: He addressed it.
Speaker 4: The Bloomberg reporters in the room and ask him that
Speaker 4: bad question because they need to have a strategy.
Speaker 6: That's the one they've been rich.
Speaker 2: Take a memo corn out one to tell what was saying.
Speaker 1: Well, and you brought up McTeer and he was the
Speaker 1: one arguing for the productivity revolution. He was the one
Speaker 1: arguing saying, we're going to be getting productivity and we
Speaker 1: need to we need to make sure that we don't
Speaker 1: raise rates into this stronger GDP because if you recall
Speaker 1: in the second half of the nineties, GDP started to
Speaker 1: gain momentum after those three rates while inflation fell.
Speaker 5: The nineties late nineties were very good to me, they
Speaker 5: weren't so Julia, you know, I'm trying to explain to
Speaker 5: my kids are in the workforce now that this is
Speaker 5: a more normalized rate environment. That's your stuff we live
Speaker 5: through before. Is that kind of where we are now
Speaker 5: we're back to normal? I guess I hope. So.
Speaker 4: I mean, I think we've got or in a positive
Speaker 4: real rate environment. It looks like the economy can handle that.
Speaker 4: So I agree, our star is probably higher. That's where
Speaker 4: we wanted to end up, right, That's what the whole
Speaker 4: idea of the last strategy review at the FED was
Speaker 4: about engineering a somewhat higher run rate on inflation and
Speaker 4: gaining some policy space. And I think signs are that
Speaker 4: we're that's exactly where we're heading. That will give them
Speaker 4: better trade offs. I know, I know I'm going to
Speaker 4: say this, and people's heads aren't going to explode. We've
Speaker 4: got a better mix of fiscal and monetary policy.
Speaker 2: Now.
Speaker 6: Of course, six percent deficits are not sustainable forever, but
Speaker 6: you know what we have had.
Speaker 4: Is better state in local government, better fiscal participation. The
Speaker 4: FED isn't carrying all the water for the economy.
Speaker 3: You guys aren't allowed to travel together for safety, but
Speaker 3: and you guys talked about how you adjust your FED
Speaker 3: calls seriously to the end of the year. Did you
Speaker 3: make a switch this morning when you publish for Macro
Speaker 3: Policy Perspectives and you know switch this morning.
Speaker 4: I think what we've been flagging for our clients is that,
Speaker 4: you know, the outcome of today's meeting and the tone
Speaker 4: and the tenor is going to depend on this morning's data.
Speaker 4: It is an important data point and if we get
Speaker 4: what we were below consensus on inflation, it came in
Speaker 4: at our actually even a little bit below our forecast,
Speaker 4: but that that would lean towards a more positive, constructive
Speaker 4: message that we're going to start in September.
Speaker 6: So I think that that's where we're at.
Speaker 4: The data has ratified that orientation, and now it's up
Speaker 4: to Share Powell to deliver the message.
Speaker 3: And Ian Lingen is a third of a way to
Speaker 3: a stunning call in the ten year yield YEP four
Speaker 3: point two eight percent. I'm not saying it's going to
Speaker 3: drive lower, but that's what Demo Capital Markets is saying
Speaker 3: YEP exactly.
Speaker 5: So where's constance? Where are you guys thinking about GDP
Speaker 5: this year, next year? How is this economy going to
Speaker 5: be growing?
Speaker 1: Yeah, So we had originally been thinking we would have
Speaker 1: a soft patch this year because higher rates would begin
Speaker 1: to take a bite out of growth. And now we're
Speaker 1: thinking that if the FED can act and that in time,
Speaker 1: that that may be able to be avoided. And part
Speaker 1: of the reason that's going to be avoided is this
Speaker 1: productivity story that Julia was talking about earlier, right, and
Speaker 1: all of the aspects of that that are.
Speaker 6: Playing out in the ECONO.
Speaker 1: So we're looking for a little softer than last year
Speaker 1: and then a little bit of a pickup probably in
Speaker 1: the second half of twenty twenty five as lower rates
Speaker 1: continue and feed into growth.
Speaker 3: Wa too optimistic constant Juliet cornerdo micro policy perspectives?
Speaker 2: Can we do this again?
Speaker 3: Is yeah?
Speaker 2: Thank you, Thank you so much